and this is my hsqldb-ds in case you need to know I'm running hsql in server mode:

<?xml version="1.0" encoding="UTF-8"?>
<!-- The Hypersonic embedded database JCA connection factory config -->
<!-- $Id: hsqldb-ds.xml 63175 2007-05-21 16:26:06Z rrajesh $ -->
<datasources>
<local-tx-datasource>
<!-- The jndi name of the DataSource, it is prefixed with java:/ -->
<!-- Datasources are not available outside the virtual machine -->
<jndi-name>DefaultDS</jndi-name>
<!-- For server mode db, allowing other processes to use hsqldb over tcp.
This requires the org.jboss.jdbc.HypersonicDatabase mbean.-->
<connection-url>jdbc:hsqldb:hsql://${jboss.bind.address}:1701/</connection-url>
<!-- For totally in-memory db, not saved when jboss stops.
The org.jboss.jdbc.HypersonicDatabase mbean is required for proper db shutdown
<connection-url>jdbc:hsqldb:.</connection-url>
-->
<!-- For in-process persistent db, saved when jboss stops.
The org.jboss.jdbc.HypersonicDatabase mbean is required for proper db shutdown
<connection-url>jdbc:hsqldb:${jboss.server.data.dir}${/}hypersonic${/}localDB</connection-url>
-->
<!-- The driver class -->
<driver-class>org.hsqldb.jdbcDriver</driver-class>
<!-- The login and password -->
<user-name>sa</user-name>
<password></password>
<!--example of how to specify class that determines if exception means connection should be destroyed-->
<!--exception-sorter-class-name>org.jboss.resource.adapter.jdbc.vendor.DummyExceptionSorter</exception-sorter-class-name-->
<!-- this will be run before a managed connection is removed from the pool for use by a client-->
<!--<check-valid-connection-sql>select * from something</check-valid-connection-sql> -->
<!-- The minimum connections in a pool/sub-pool. Pools are lazily constructed on first use -->
<min-pool-size>5</min-pool-size>
<!-- The maximum connections in a pool/sub-pool -->
<max-pool-size>20</max-pool-size>
<!-- The time before an unused connection is destroyed -->
<!-- NOTE: This is the check period. It will be destroyed somewhere between 1x and 2x this timeout after last use -->
<!-- TEMPORARY FIX! - Disable idle connection removal, HSQLDB has a problem with not reaping threads on closed connections -->
<idle-timeout-minutes>0</idle-timeout-minutes>
<!-- sql to call when connection is created
<new-connection-sql>some arbitrary sql</new-connection-sql>
-->
<!-- sql to call on an existing pooled connection when it is obtained from pool
<check-valid-connection-sql>some arbitrary sql</check-valid-connection-sql>
-->
<!-- example of how to specify a class that determines a connection is valid before it is handed out from the pool
<valid-connection-checker-class-name>org.jboss.resource.adapter.jdbc.vendor.DummyValidConnectionChecker</valid-connection-checker-class-name>
-->
<!-- Whether to check all statements are closed when the connection is returned to the pool,
this is a debugging feature that should be turned off in production -->
<track-statements/>
<!-- Use the getConnection(user, pw) for logins
<application-managed-security/>
-->
<!-- Use the security domain defined in conf/login-config.xml -->
<security-domain>HsqlDbRealm</security-domain>
<!-- Use the security domain defined in conf/login-config.xml or the
getConnection(user, pw) for logins. The security domain takes precedence.
<security-domain-and-application>HsqlDbRealm</security-domain-and-application>
-->
<!-- HSQL DB benefits from prepared statement caching -->
<prepared-statement-cache-size>32</prepared-statement-cache-size>
<!-- corresponding type-mapping in the standardjbosscmp-jdbc.xml -->
<metadata>
<type-mapping>Hypersonic SQL</type-mapping>
</metadata>
<!-- When using in-process (standalone) mode
<depends>jboss:service=Hypersonic,database=localDB</depends>-->
<!-- Uncomment when using hsqldb in server mode-->
<depends>jboss:service=Hypersonic</depends>
</local-tx-datasource>
<!-- Uncomment if you want hsqldb accessed over tcp (server mode)-->
<mbean code="org.jboss.jdbc.HypersonicDatabase"
name="jboss:service=Hypersonic">
<attribute name="Port">1701</attribute>
<attribute name="BindAddress">${jboss.bind.address}</attribute>
<attribute name="Silent">true</attribute>
<attribute name="Database">default</attribute>
<attribute name="Trace">false</attribute>
<attribute name="No_system_exit">true</attribute>
</mbean>
<!-- For hsqldb accessed from jboss only, in-process (standalone) mode
<mbean code="org.jboss.jdbc.HypersonicDatabase"
name="jboss:service=Hypersonic,database=localDB">
<attribute name="Database">localDB</attribute>
<attribute name="InProcessMode">true</attribute>
</mbean>
-->
</datasources>

I don't know where to put the compnents.properties. Seam puts it in crudappwar4/src/model/ ?I thought seam generates the project as well as the properties files in the correct place.The components.xml is in crudappwar4/WebContent/WEB-INF/.What do you mean by hardcoding the JNDI pattern as in the properties file!

And could it be that "Dynamic Web Project with Seam 2.0 (technology preview)" is not yet working properly I used it because I've "jboss-seam-2.0.0.GA" in the doc they use seam 1.2!